After overcoming an early setback, natural gas bulls stole the show for the third-straight session yesterday, as commercial traders propelled the futures market past several important technical levels. By virtue of its 12.2-cent advance and $4.301 closing price, the July contract has rebounded almost 60 cents from last Friday’s lows to notch a new three-week high.

Several traders contacted by NGI yesterday were quick to point to the “weather showing up in earnest,” yesterday as a reason for the futures market continuing higher. Usually, the futures market trades higher on the forecast of hot weather, and then tumbles lower when the weather actually arrives, but this was not the case Tuesday. One possible explanation for why this ‘buy the rumor, sell the fact’ trading rationale did not work is that higher cash prices early yesterday were able to pull the futures market out of its lower opening.

Heat advisories were issued in Washington, DC, yesterday and the warm temperatures and humidity were expected to continue today before abating on Thursday, as remnants of Tropical Storm Allison are expected to bring rain to the Mid-Atlantic. Meanwhile, muggy heat with highs in the 90s are expected across the Midwest and Ohio River Valley today.

However, the weather will likely take a back seat to fresh supply data when the American Gas Association releases updated storage data this afternoon. Expectations ahead of that report are centered on a 90-110 Bcf refill, which if realized would easily eclipse last year’s 78 Bcf injection and the 5-year average refill of 82 Bcf. Storage currently stands 46 Bcf above year ago levels and just 1 Bcf beneath the 5-year average.

Taking into account the likelihood for a bearish storage report this afternoon, most analysts and futures traders were reluctant to endorse the market continuing higher. The notable exception was Jerry Rafferty of New York-based Rafferty Energy Group, who is turning cautiously bullish on prices.

“The six month old bear market in natural gas is over! As the charts clearly show, the prices have broken out above all those downward sloping lines of resistance. All during this period of time, we could see the selling opportunities that every rally provided. Whenever they approached these critical lines of resistance — each and every time we sold against the resistance lines, we knew that the risk of selling was that it would close above those very same lines. If the rally could close above them, a new trend would begin. The breakout took place at $4.00 and $4.05; both of these numbers should now be good support. While the rally could easily challenge the greater resistance of $5.00, it will have its obstacles along the way,” he said.

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